Are you receiving as much CPP as you should be?

You might think that the answer must be “Yes.” Why would your Canada Pension Plan (CPP) amount ever be less than it should be? Isn't CPP based on the contributions that you have made? Well, you might be surprised to learn that many people are being underpaid by CPP!

Of the CPP audits that I have conducted in the past six months, almost half of the clients were receiving less than they were entitled to. Sometimes these underpayments were less than $1 per month, but one client was being underpaid more than $50 per month. The average underpayment has been about $12 per month..

Why are CPP pensions being underpaid?

The main cause of the underpayments that my CPP audits have identified, is that not all earnings are being included in the pension calculation.

The amount of a CPP retirement pension is 25 percent of your “average lifetime earnings,” adjusted for inflation, but providing for certain “dropout” periods. If some earnings aren’t being included in your pension calculation, this could reduce your average lifetime earnings and result in you receiving less CPP than you are entitled to.

Why aren’t all earnings being included in the calculation?

It’s easy to see why this is happening if you understand how CPP earnings and contributions are tracked.

Service Canada doesn’t receive your earnings information directly from your employer; they receive it from Revenue Canada after your tax return is processed. That means, for example, that if your pension started early in 2016 they probably wouldn’t have received your 2015 earnings details yet and they definitely won’t receive your 2016 earnings details until some time in 2017, when your 2016 tax return is processed.

That’s why all CPP benefits are initially approved as what they call “interim amounts,” with the expectation that the amounts will be recalculated the following calendar year, when Service Canada has received all of the relevant earnings information from Revenue Canada. At that time, all pensions approved the previous year should normally be recalculated and any underpayments should automatically be issued. It is this recalculation process that appears to have broken down, or at least in many cases.

Is there a pattern to the CPP pensions that are being underpaid?

So far, this issue seems to mostly involve retirement pensions that started between 2008 and 2014, where the person was working in the year that their CPP started or in the previous year.

What should I do if my situation fits the above pattern?

Some clients have been successful simply by calling Service Canada at 1-800-277-9914, and asking them to ensure that their pension calculation includes their earnings for those last two years. However, other clients who tried calling have been told simply, “Of course we’re paying you the correct amount,” even when this wasn’t always the case.

I can help by doing a calculation for you so that you know whether you are being underpaid on your CPP before you call Service Canada, or I can handle everything on your behalf, including contacting Service Canada.

Are there any other reasons that I might be receiving less than I should be?

While the missed earnings issue seems to be the main cause of underpayments identified, other reasons include:

Missed or incorrectly applied child-rearing provision opportunities

Missed credit-splitting opportunities

Simple data entry errors

While underpayments for these other reasons are less common, they tend to create larger underpayments.

My CPP audit services can also help identify and correct these other underpayment situations.

Written by Doug Runchey

Doug Runchey worked for the Income Security Programs branch of Human Resources and Skills Development Canada for more than 32 years, and was a specialist in the Canada Pension Plan and Old Age Security legislation, regulations and policy areas. He now runs his own company, DR Pensions Consulting, which provides pension advice, including detailed calculations for CPP retirement planning and “credit splitting” purposes. Doug can be reached by email @ [email protected] or check out his website at http://www.drpensions.ca/.

Thanks Doug – another very useful article for new cpp recipients (we’re on the rise!). I had advised my brother who started his CPPension this year that it would be revised once they received and factored in his 2014 and (some) 2015 pensionable earnings, but had not considered the changes should be monitored (i.e., calculated): you’ve put the fear of Gov in me.

I worked part time when my children were under 7, but my oldest son also was diagnosed with autism at age 4, so I worked only part-time until he was about 12. We got at tax credit through CRA for his disability, but I do not see on the CPP application forms where I can have these low income earning years, exempt from my CPP for calculating maximum CPP earnings. Any suggestions? I have applied for CPP for the month following my 65th birthday.

Norma – Unfortunately you can only drop out periods under the child-rearing dropout, when at least one of your children was under age 7. Fortunately you are also eligible for the general 17% dropout, which will allow you to drop out other low-earning years.